Carriers are hurting, while Apple and Samsung get grief on Wall Street. The root of the problem: Slowing smartphone innovation

AT&T is getting nervous, and so are its competitors in the cellular business. Growth is slowing, upgrades to new phones by subscribers is sluggish, and there are signs that the smartphone market is approaching saturation. What's a carrier to do? Make it easier to upgrade.

People have long been unhappy about being locked into two-year contracts and the concurrent lenghty waiting period before being allowed to upgrade to a new phone at a subsidized price. In America, that is -- in most of the world, people pay full price for their phones, in exchange for being able to use them on any network. Contracts exist, but they're about locking in discount usage rates, not getting subsidized phones.

So AT&T, the second-largest American phone carrier, yesterday announced a new service wrinkle that will allow customers to upgrade a phone after just one year. T-Mobile offered a similar plan last week, and Verizon, the No. 1 U.S. carrier, launched a similar plan toay.

It's not going to work.

Whatever the virtues and failings of those plans from a buyer's point of view (there are many, not least of which is that AT&T and Verizon are effectively double-charging for devices in their new plans), they won't address the core of the problem: Innovation in the smartphone market is simply slowing. It hasn't reached the level of stagnation we've seen in the PC industry, where you simply can't tell one box from another, but it's very real. From the perspective of Apple, Samsung, and the rest of the bunch, it's a very dangerous trend.

Upgrades are important because they keep users locked to the specific carrier's network longer, reducing customer turnover, which saves money -- plus, customers who upgrade tend to use more data, and thus spend more, as they take more advantage of their new devices. So smartphone innovation is critical to spurring sales of new devices for upgraders to buy.

But there is innovation happening in mobile hardware, and it's coming from companies like SAP, IBM, Epson, and Plantronics that are developing wearable products with real business use in factories, medicine, and the office. It's not sexy stuff, but it's terribly practical. I bet they'll even make money before too long.

Upgrading from iPhone 4S to 5: Why bother?

Consider my own experience as a smartphone user. Even though I make a living writing about technology, I'm not an earlier adopter, and my budget is limited. (Hey, I'm a writer, what do you expect?) In many ways, I'm probably fairly representative of the technology-buying public.

When I moved from a cellphone to an iPhone 3G S some years ago, I was astonished by how much my use of technology changed as a result -- for the better. I no longer needed to run home to check my email, I had a camera in my shirt pocket, my calendar and contacts synced with those on my laptop, and if I wanted to go online while sitting in a café, the Web was right there.

I remember sitting in a café reading the chapters in "War and Peace" on the Battle of Austerlitz. Not knowing much about Napoleon's great victory, I pulled out my iPhone and looked it up. A great 21st-century technology improving the experience of reading a great 19th-century novel while sitting outside on a pleasant afternoon -- how cool is that?